India makes it easier for foreign firms to invest in many industries

NEW DELHI — India announced a number of far-reaching measures on Monday to ease foreign investment in defense, civil aviation, pharmaceuticals, retail, food trade and broadcasting, a move that officials say will strengthen the country’s efforts to be a global manufacturing hub.

The initiative is aimed at shoring up confidence in the Indian economy among foreign investors during global uncertainty over Britain’s upcoming vote on whether to remain in the European Union, analysts said. The new measures come two days after India’s central banker, Raghuram Rajan, announced he would leave his position after his term ends in September, a step that disappointed many economists and dampened stock markets here Monday.

The government’s action opens up more than a half-dozen sectors to 100 percent foreign investment. It said in a statement that “with these changes, India is now the most open economy in the world.”

Since Narendra Modi was elected prime minister in 2014, his government has worked to increase the ease of doing business in India. More than $55 billion in foreign investment came into the country between 2015 and 2016, up 15 percent from the previous year, according to the government.

India’s commerce and industry minister, Nirmala Sitharaman, told reporters that becoming a “manufacturing hub and creation of jobs are the twin-fold objectives” of the measures.

“We are reducing the number of sectors which we are locking up and saying, ‘Don’t touch it,’ ” Sitharaman said.

India will now allow 100 percent foreign investment in the defense industry, up from the current 49 percent equity limit, in proposals that bring in “modern technology.” An earlier condition of bringing “access to state-of-the-art technology” was jettisoned Monday.

Some critics dismissed the measures as mere wordplay and not radical reforms. The definitions of such terms continue to be ambiguous and will generate more frustrating conversations between officials and defense contractors in the coming months, they said. But Sitharaman said that “definitions will have to be simplified, and clarity will emerge.”

“ ‘State of the art’ is subjective and could have led to a political witch hunt later, and hence most foreign companies were wary of using this provision,” said Amber Dubey, partner and head of aerospace and defense in India at the business consulting firm KPMG. He said that “easy terms like ‘modern technology’ will allow most leading defense companies to come in unhindered.”

Modi’s government raised the foreign-investment limit in defense from 26 to 49 percent in 2014. But many companies were reluctant to transfer critical defense technology without real ownership.

The government also relaxed local sourcing norms for up to three years for single-brand retail trading of products that have “cutting-edge” technology, a move likely to benefit Apple in its effort to open a chain of branded stores in India.

“We will inform Apple to indicate whether they would like to avail the new provisions,” Ramesh Abhishek, secretary of the Department of Industrial Policy and Promotion, told reporters. Apple had applied for exemption from the government’s rule of the 30 percent local-sourcing norm.

Another beneficiary will probably be Ikea, the home products and furniture company.

Perhaps the biggest step, some said, was to permit 100 percent foreign investment for trading in food products that are produced locally.

“The opening up of food trading holds the most promise and is likely to generate real investment,” said Richard M. Rossow, an expert in U.S.-India policy studies at the Center for Strategic and International Studies in Washington. “If a foreign company comes in and sets up a national grocery chain in India, it could be pretty significant in creating a huge number of low-skilled jobs.”

Foreign pharmaceutical companies can now invest up to 74 percent automatically in existing brownfield projects without government approval.

India also allowed 100 percent foreign investment in the civil aviation sector, up from 49 percent.

“The days of micro-management in aviation are gradually getting over,” Dubey said. The change “will help bring in much-needed cash, aircraft fleet and best practices.”

The Indian economy is expected to grow at 7.6 percent in the current financial year, the World Bank said in a report released Monday. But agriculture, rural consumption, private investments and exports have not performed well, the report said.

Rossow said that many fundamental barriers to doing business in India remain, such as land acquisition, labor laws and access to electrical power.

“It is a good day for foreign investment and market access. But I would hold off on making a very big deal of it,” Rossow said.